It’s Not the End of the World Just Yet
Top 5 of the Week of November 7
In this week’s Top 5, CIO of Ritholtz Wealth Management, Barry Ritholtz discusses the trending move from active investing to passive on Bloomberg View. John Rosevear from The Motley Fool warns us to take caution as investors when looking for “disruptive” opportunities. And Market Watch’s Mark Hulbert explains why the bull market is alive and well.
Ben Carlson, the author of A Wealth of Common Sense, warns us not to be concerned about the view from the top of an all-time high in the stock market. And with Donald Trump’s election as the 45th president of the United States causing global controversy both in politics and the stock market, The Reformed Broker Joshua Brown has some words of comfort to offer…
Investors Are Abandoning Active Investing
- Active managers are actually closet indexers; they buy stocks based on their benchmarks—the same as an index fund works
- Sticking close to the benchmark is an act of job preservation; average performance is better than risking major underperformance as a fund manager
- And doing this process by buying passive funds that are cheaper than active closet-indexing funds makes more financial sense
- So rather than expensive passive investing investors are simply choosing inexpensive passive investing
Comma.ai: A Disruptive Start-Up Set For Success…
- …but who fell at the first hurdle because they failed to properly assess the risks of the market they faced
- Famed hacker George Hotz’s company cancelled the launch of their self-drive system due to a ‘Special Order’ demanding more rigorous testing
- Despite warnings from Tesla about the difficulty of achieving true machine autonomy safely they failed to listen
- Seasoned investors should note this lesson too; when looking for potential tech investments, remember even disruptive tech can fall flat
The Wall of Worry Is Rebuilding
- A clear indication that we’re in a bull market at the moment is that the market is becoming increasingly cautious; the “Wall of Worry” is certainly being rebuilt
- With current global and political events as they are and given the pessimistic mood, it is surprising that there has been only a modest pullback in the market overall
- Contrarian analysis though is only a short-term market timing skill—these bearish market timers can so quickly turn bullish again too
Why All-Time Highs in the Stock Market Shouldn’t Make You Nervous
- Investors start to get nervous when it looks like a high is approaching as during early-2000 and late-2007 the S&P 500 slashed in half after respective market highs
- All-time highs don’t happen very often and there’s usually extended periods of time between them following bear markets
- They’re a natural occurance in the market and though there are times where stocks have performed negatively, “most of the time markets continue to rise from all-time highs”
- Only hindsight ever offers perfect 20-20 vision
It’s Not the End of the World Just Yet
- The kneejerk reaction that occurred in the stock market this week was just that, as with Brexit it recovers from these type of events
- While on the surface it looks like a flash crash, that is in fact statistically improbable, it is just an emotional reaction to the political circumstances
- Markets are like people; they cannot be scientifically modeled or predicted; only with hindsight can we truly understand and analyze behavior
- The situation is what it is, and we are “off the lows” at least
What do you think Trump’s presidency means for the markets? Share your thoughts in the comments section below
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Top 5 of the Week is a summarized collection of financial investment articles that we like and think you might like too. Having written thousands of pages of equity strategy and company research between us, we understand the allure of the ever-changing world of finance. Investing is an art form – and like everything, something you can work on and improve at. There are some excellent writers out there on the finance web, some offer a running commentary on today’s market, some are doing research, some have tips on how to Become a Better Investor, and some just lift the cloud of fog behind a lot of financial jargon. Each week we will keep you up to date with the top 5 articles worthy of your attention.
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